While the spring homebuying season showed signs of life in recent weeks, the construction side of the housing market is off to a sluggish start.
Although housing starts rose 1.6% month over month in April, building permits were down 4.7% from the prior month and housing completions fell 5.9% from March, according to data from the U.S. Census Bureau and Department of Housing and Urban Development.
April saw 1.361 million seasonally adjusted housing starts, which is down 1.7% from the previous year. There were 1.412 million building permits issued in April on a seasonally adjusted basis, down 3.2% from the prior year. Housing completions clocked in at 1.458 million seasonally adjusted units, down 12.3% from April 2024.
Wells Fargo economists Charlie Dougherty and Ali Hajibeigi singled out the dip in construction permits as the most telling sign of the April report.
“Although the monthly bounce in overall starts is an encouraging sign that projects continued to move forward despite Liberation Day volatility, a surprisingly steep decline in building permits is the latest evidence that residential construction is slowing as builders contend with high mortgage rates, an elevated inventory-to-sales ratio and increased policy uncertainty,” the Wells Fargo economists stated in an analysis, adding that they continue to expect residential construction to decline this year.
While Odeta Kushi, deputy chief economist at First American Financial Corp., agreed that the April report “was not a great one for single-family housing,” she sees reasons for “cautious optimism as we approach the second half of the year.”
“The long-term housing shortage, builders’ ability to offer incentives and potentially less restrictive monetary policy could be tailwinds,” Kushi said in a commentary.
However, Kushi observed “souring builder sentiment” in recent data from the National Association of Home Builders (NAHB), noting that “builder sentiment in May dipped to the same level as in November 2023, equaling the lowest index value since December 2022.”
“Builders’ growing pessimism is partially driven by the increase in mortgage rates in April, which impacts both builder and buyer financing costs,” Kushi stated. “Residential construction costs are still more than 40% higher compared to pre-pandemic levels and skilled labor shortages persist. Policy uncertainty also weighs heavily on builder sentiment, with 78% of builders reporting difficulties pricing their homes recently due to uncertainty around material prices, according to NAHB.”
